China syndrome: is sinophobia driving dread of Nexen takeover?

The Chinese national flag flies near a security guard outside the CNOOC Ltd. headquarters in Beijing, China, on Tuesday, July 24, 2012. Photographer: Nelson Ching/Bloomberg

What’s so scary about the CNOOC-Nexen deal?

Is it the litany of human rights abuses by CNOOC’s ultimate owner – the Chinese government? Is it the suspicions of espionage and intellectual property theft that swirl around most big-ticket Chinese industries? Is it the fact CNOOC is a state-owned enterprise (SOE)? Is it because Nexen is a strategically important company to Canada? Or is it because Canadian companies can’t buy up resources in China like CNOOC can here – an unfair lack of reciprocity?

Pinpointing exactly what irks Canadians about CNOOC’s takeover of Nexen can be baffling. Some outrage doesn’t seem to be consistently applied, like the antipathy towards SOEs. And other items, like worries about losing intellectual property and a strategically important firm, often lack evidence and substance.

But that hasn’t stopped some alarmist opposition to the deal in Ottawa. From Conservative MP Rob Anders’ claim that China is the greatest threat to Western civilization (along with jihad) in an interview with iPolitics last week, to NDP MP Pat Martin’s allegation in the House of Commons last month that anyone who supports the takeover is guilty of “economic treason” – the business deal has triggered a defensive nerve in the Canadian psyche, at least in the most outspoken corners of the political spectrum.

Maybe, just maybe, it’s because we’re sinophobic.

Not the racist kind of sinophobia behind Canada’s head tax and its race riots of yesterday, but an assumption – apparent in Canadians’ growing awareness of China’s rise – that the country is an economic enemy out to get us.

The data do not overwhelmingly support this theory, however.

Polls show that Canadians generally have warm feelings about China. The last time the Pew Global Attitudes Project looked at Canadians’ views of China, in 2009, the majority had a favourable view of the country. A more recent poll by the BBC found that in 2011 more Canadians had negative views of China than positive ones, while in 2012 opinion had swung sharply the other way.

In Alberta, where conservative opposition to the Nexen-CNOOC takeover has put pressure on the government, the vast majority think the province should increase ties with China, according to a survey by the University of Alberta’s China Institute.

But things change a bit when the rubber meets the road. A new poll of Canadian executives released last week by the Gandalf Group showed that opposition to the CNOOC-Nexen deal would diminish for a sizable sum of those polled if CNOOC were an American or Canadian firm.

Acording to several experts on Canada-China relations, there is a sinophobic element in the debate on CNOOC-Nexen. Sometimes it’s justified by China’s behavior inside and outside the country; at other times, it’s just plain wrong.

They all say it’s all based on a lack of understanding and information on China as Canada undergoes the growing pains of deeper economic ties.

“It’s more under the water but you can sense it’s seeping through in our current intensified national debate,” said Wenran Jiang, a professor at the University of Alberta who is currently on leave to advise the Alberta government on market diversification in Asia. “The public is not well-informed and they may not have a well-informed opinion.”

The greatest misconception over the CNOOC-Nexen deal is the belief that the big, bad Chinese, in their quest to gobble up our resources, are rewriting the rules for themselves in Canada.

“People don’t seem to remember that PetroChina, Sinopec CNOOC – all have Canadian subsidiaries and they have been here for a long time,” said Jiang. “It looks like these guys are just coming, but we have a proven record around these companies.”

One of the reasons given for the NDP’s decision to oppose the CNOOC-Nexen deal was an allusion to the uncertainty over the regulatory regime.

“It is also unclear how Canada’s environmental standards will be enforced with regards to the sustainable development of its resources,” said a party news release issued after the announcement.

If environmental rules are being changed to, I don’t know, build a pipeline through the northern British Columbia wilderness for China, responsibility still lies at the feet of Canadian officials.

But as far as CNOOC taking over Nexen, it’s a company buying a company, full stop. They’re not changing the regs.

“One of the things that Canadians can take comfort in is that the Canadian regulatory system remains relatively robust in areas such as corporate governance and areas such as the environment and labour,” said Pitman Potter, HSBC Chair in Asian research at the University of British Colombia’s Institute of Asian Research. “There’s no reason to suspect that that regulatory reach would not capture Canadian energy companies in which Chinese energy firms have a significant or majority share.”

Another assumption likely lending itself to sinophobic anxiety is that Nexen is a strategically important company.

“Nexen is a small deal,” said Jiang. “They are like, what, one per cent of Canadian energy production, three per cent production of total Canadian proven reserve in terms of energy. China’s investment in Canada’s is only about 2 per cent of Canada’s total (foreign direct investment.) What’s the cause for alarm?”

Chinese investment in Canada was $10.9 billion in 2011, according to the Asia-Pacific Foundation. Nexen is not a company understood to have critically important intellectual property, nor are most of its assets in Canada.

But the fact that CNOOC is an SOE with a murky relationship with the Chinese government is something more worthy of concern. It also raises questions about whether Canada wants to tie itself to a shareholder linked to widespread human rights abuses.

“China’s state owned enterprises … have access to capital and credit in ways that purely private companies don’t and that insulates them to a certain degree from market failure and permits policy-based decisions on occasion,” said Potter. “We need to be careful not to just mix China’s state-owned enterprises with Crown corporations and consider them to be the same character because given the circumstance in China, that analogy is a bit strained.

“(The Chinese) have said they want state-owned enterprises in strategic areas to further China development goals. They’ve been pretty clear about the purpose of these enterprises and it takes them out of the pure market actor category.”

Through reports to the National People’s Congress and other outright policy statements, China has shown that its SOEs are “subject to market discipline, but they still have a policy element that cannot be ignored,” said Potter.

Other energy SOEs, like Norway’s Statoil, operate in Canada without any controversy. Ottawa is also reviewing the takeover of Progress Energy Resources by Malaysian SOE Petronas.

As for espionage, most news reports offer a brief quote from CSIS director Richard Fadden in 2010 regarding his suspicions about Chinese spies and a couple of ultimately inconclusive examples.

What the Canadians public needs is a thorough study on whether the accelerated arrival of Chinese companies necessarily means more spies are in the country – much like the U.S. House of Representivies’ Intelligence Committee’s examination of telecommunications firms Huawei and ZTE, which determined both companies could not put to rest fears over their ties to Beijing this week.

That brings us to the tricky question of what’s so special about being owned by the Chinese government, which often comes down to its dismal human rights record, a history that includes everything from the violent suppression of dissent to corruption to a lack of the rule of law.

The sudden disappearance of the country’s prospective future president Xi Jinping last month also “raises questions of concern about transparency toward the broader market and the broad community,” said Potter.

These points need to be raised and, hopefully, through the debate the Chinese will “come to understand the complexity of the environment in which they’re operating in Canada and they become more transparent with information,” said Potter.

The media outreach by the Chinese ambassador to Canada in recent weeks is certainly a sign that the country understands it must do better at explaining its intentions.

The challenge will be in walking the balance between feeding outsized fears over China and using sinophobia as a bad word to target opposition, much in the way the term anti-Semite is used to silence criticism about Israel.

Canadians should have “principles of intellectual freedom and civil society engagement (in the debate),” said Potter. “There’s a really a lot of benefit to be gained to having a more open and inclusive discussion.”